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  • Writer's pictureAaron Mullis

IRS provides new guidance on treatment of expenses related to PPP forgiveness.

WASHINGTON — The Treasury Department and the Internal Revenue Service issued guidance on January 4, 2021 allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).

This guidance reflects changes to law contained in the COVID-related Tax Relief Act of 2020.

The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan. This change applies for taxable years ending after March 27, 2020. This reverses the previous position of the service that disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan. This ruling should provide some measure of additional relief to those businesses fortunate enough to receive funding through the PPP program.

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